Randick Law Bloghttp://randicklaw.com.s206305.gridserver.com/blog
Just another WordPress siteWed, 29 Jul 2015 17:35:19 +0000en-UShourly1http://wordpress.org/?v=4.2.19Trust, But Verifyhttp://randicklaw.com.s206305.gridserver.com/blog/?p=201
http://randicklaw.com.s206305.gridserver.com/blog/?p=201#commentsTue, 15 Oct 2013 17:11:54 +0000http://randicklaw.com/blog/?p=201In commercial transactions and litigation, there is a difficult tension to maintain – building and preserving business relationships with preserving legal rights in the case of controversy. The Russian proverb popularized by Ronald Reagan during the Cold War thaw — Доверяй, но проверяй (doveryai, no proveryai); Trust, But Verify — has served me well in my commercial transactions and litigation practice. Negotiate terms in good faith and then verify the terms in writing!

Unfortunately, in the heat of business negotiations, I find that many clients enter into many deals by handshake (“Trust”) but forget to properly document (“Verify”) the oral understanding either in the actual language of the contract they sign or document, in writing, any modifications or amendments to an existing written contract. When a dispute over oral discussions occurs within the jurisdiction of California, the party whose position is consistent with the terms of the written agreement usually prevails at the beginning of a litigation. Defendants were typically able to dismiss “promissory fraud” cases at the pleading stage relying on the parol evidence rule. The balance appears to have shifted earlier this year when the California Supreme Court, in Riverisland, joined the majority rule that allows a plaintiff to introduce evidence of fraud, usually in the form of oral statements, despite the existence of a written agreement. See my colleague Leslie A. Baxter’s article on Riverisland.

From a litigation perspective, this case breathes life into legitimate fraud claims for clients who trusted but failed to verify their understanding in writing. From a transactional perspective, where it serves all parties’ best interests (except litigators) to avoid litigation, it is even more important for all parties to verify all oral understandings in writing, including explicit acknowledgment that all signers had the opportunity to review with counsel and confirmed the writing is consistent with their understanding.

On January 14, 2013 the California Supreme Court overturned 78 years of precedent and expanded the fraud exception to the parol evidence rule.

Introduction

In Riverisland Cold Storage v. Fresno-Madera Production Credit Association (2013) 55 C4th 1169, reported on p 42, plaintiffs sued their lender, seeking damages for fraud and negligent misrepresentation, rescission and reformation of a loan. Plaintiffs (the Workmans,) alleged that the lender’s vice president had told them that they would extend their loan for two years, in exchange for adding two more properties as collateral. The written contract, however, recited only three months forbearance on the loan (then in arrears) and identified an additional eight properties as collateral. The Workmans sued after the lender attempted to foreclose under the loan agreement. The trial court granted the lender’s motion for summary judgment, relying on Bank of America N.T. & S.A. v. Pendergrass (1935) 4 C.2d 258, 263.

The Pendergrass Rule

The Pendergrass rule is that parol evidence is admissible to establish fraud in the procurement of a contract by an independent fact or representation, but not by a promise that directly varies with the promise in the writing. 4 C2d at 263. The Court in Pendergrass explained that it would be “reasoning in a circle” to argue by oral testimony that a written agreement is fraudulent. 4 C2d at 263. The court left open the opportunity to prove that the agreement is invalid due to promissory fraud, through proof that there was no meeting of the minds on the terms of the agreement because one party fraudulently induced the other to enter into a contract. See, Riverisland, 55 C4th at 1173,n.3, citing 5 Witkin, Summary of California Law, Torts §781 (10th ed 2005).

California Case Law After Pendergrass

In California, pleading promissory fraud has been a low-yield proposition for plaintiffs attempting to invalidate an integrated, written contract. Two years ago, with Riverisland already on appeal to the supreme court, the court in Duncan v. McCaffrey Group, Inc. (2011) 200 CA4th 346, 373, overruled in Riverisland, 55 C4th at 1182 (reported at 35 CEB RPLR 57 (Mar. 2012)), ruled that plaintiff homeowners could not proceed on claims of promissory fraud against the developer. The Duncanplaintiffs had claimed that the developer promised them that the development would contain only custom homes. The purchase agreements, however, reserved to the developer the right to build other types of homes. The allegedly fraudulent representations were directly at odds with the written agreement. The court sustained the demurrer on the fraud claims, allowing plaintiffs to proceed on claims of unfair competition, false advertising, breach of fiduciary duty and constructive fraud. The court explained that (200 CA4th at 373, quoting Alling v Universal Mfg. Corp. (1992) 5 CA4th 1412, 1436):

“’Promissory fraud’ is a promise made without any intention of performing it. [Citations.] The fraud exception to the parol evidence rule does not apply to such promissory fraud if the evidence in question is offered to show a promise which contradicts an integrated written agreement. Unless the false promise is either independent of or consistent with the written instrument, evidence thereof is inadmissible.”

Before Riverisland, there was often little factual difference between a case which was allowed to go forward on a fraudulent inducement theory and a case terminated by the Pendergrass rule because the oral representations were at variance with the written contract. In Pacific State Bank v. Greene (2003) 110 CA4th 375, the court held that Greene, a guarantor for her husband’s debt, could introduce evidence that a bank employee had told her that the scope of her guaranty was limited to less than her husband’s entire debt, even though that verbal assurance contradicted the terms of the written guaranty. The court reasoned that Greene could allege that there was a misrepresentation of fact over the contents of the document at the time of its execution — the type of ‘independent fact or representation” that fit within the Pendergrass rule and the theory of fraudulent inducement. The court did not characterize this verbal assurance as a promise at variance with the integrated, written agreement. 110 CA4th at 390. In contrast, the homeowners in Duncan were not allowed to go forward on their fraud claim (that the developer misrepresented to them that only custom homes would be developed in their tract) because of contradictory language in their purchase agreements. The facts in Duncan and Greene are quite similar, yet their disparate holdings highlight the inconsistency that compelled the supreme court to accept Riverisland for review.

Criticism of Pendergrass

The Pendergrass rule has been roundly criticized. As the Duncan and Greene cases show, resistance to the rule by some lower courts has led to inconsistent case law. As the court discussed in Riverisland, the Pendergrass rule is inconsistent with the terms of the parol evidence rule (CCP § 1856), which allows evidence of whether the writing is intended as a final expression of the agreement, exclusive of other terms outside the writing. CCP § 1856(d). The statute also allows evidence of a mistake or imperfection of the writing. CCP §1856(e). Without the Pendergrass rule, an oral promise that is inconsistent with the written agreement would likely be admissible to show the writing was mistaken, imperfect, or contrary to the parties’ agreement.

Practical Implications for Real Property Lawyers

What is the real property lawyer to do in the face of Riverisland? To guard against claims of fraud after the contract is signed, parties will want to document (in writing) that the other side has read the contract and understands the deal. This will safeguard against a claim that the party reasonably relied on an oral statement at variance with the written contract Representations and warranties in the contract should recite that

The parties have read and understood the contract;

All of the terms are correct;

The parties have had the opportunity to seek legal counsel or other expert advice regarding the contract terms; and

All of their questions regarding the terms have been answered.

If there are language barriers, steps to provide translation should be documented as well.

Businesses that typically contract with less sophisticated parties may want to implement pre-contract procedures designed to educate the other party or give them the opportunity to seek independent help and enough time to think about the contract terms. Of course, integration clauses and representations and warranties will never provide an ironclad guarantee of the enforceability and integrity of the contract. Whether the reliance on an oral statement was reasonable will usually be a question of fact. The stronger the contract terms are, the more counterweight they will provide to the reliance element of a fraud claim.

An unintended consequence of Riverisland may be to squelch communication and negotiation leading up to the deal. Loan officers or real estate agents may be discouraged from ‘thinking out loud” about possible deal terms, lest the other party interpret them as the deal itself. Stated in a more positive way, the parties will be more careful to communicate deal points with clarity.

What’s Next? The Future After Riverisland

Will Riverisland trigger a flood of litigation by parties seeking to invalidate written contracts by claiming fraud? It depends. Many of the cases decided under the Pendergrass rule were decided at the demurrer stage, in favor of the defendant. Now that the fraud exception has been expanded to include oral evidence at variance with written contract, the analysis will likely shift to the trier of fact, at summary judgment or trial, to determine whether there were pre-contract misrepresentations and whether they were reasonably relied on.

Even though they triggered a sea change in California’s common law regarding parol evidence, the plaintiffs in Riverisland have not yet prevailed. The Riverisland action is now remanded to the trial court. The Workmans admitted that they did not read the contract they signed — a fact the lender is expected to use to show their lack of reliance on the oral assurances. Attorneys for borrowers and others looking to challenge written contracts through parol evidence should carefully analyze all of the facts in the client’s situation to determine the viability of an action to invalidate the contract. If there is an attorney fee provision, the economics of a legal attack on the contract must be weighed against the expense of an unfavorable outcome. This should temper the collective impulse of contracting parties and their counsel to run to California courts to undo their written contracts.

]]>http://randicklaw.com.s206305.gridserver.com/blog/?feed=rss2&p=2032Is an S Corporation or an LLC Right for Your Business?http://randicklaw.com.s206305.gridserver.com/blog/?p=185
http://randicklaw.com.s206305.gridserver.com/blog/?p=185#commentsThu, 21 Jun 2012 18:48:18 +0000http://randicklaw.com/blog/?p=185The question we get asked most often by new business owners is “Should I form an S corporation or a limited liability company?” Just what are the differences between an S corporation[1] and a California LLC? There are advantages and disadvantages to both, so the decision as to which one is best for your new business will depend on your individual circumstances and goals:

Owner Liability.

The main advantage of both types of entities is the degree of protection that each provides to its owners. If the business is properly run, and all legal and financial corporate formalities are carefully observed, then the owners are insulated from liability for business taxes, torts, and debts. This protection is probably the main advantage that both LLCs and S corporations have over partnerships, associations, and sole proprietorships.[2]

Type of Business.

Almost any type of business can form an S corporation. Banks, insurance companies, and foreign corporations are types of businesses that cannot elect to be taxed as an S corporation, and there are certain restrictions on the type and number of shareholders that the corporation can have (see below.)

Generally, California licensed professionals (attorneys, accountants, architects, doctors, and so forth) are not eligible to form LLCs. Some licensed businesses, such as locksmiths and hair salons, can operate as LLCs. State law has recently relaxed this restriction, now leaving the decision up to the individual governmental regulating agencies. Licensed contractors are now for the first time permitted to form LLCs, and other licensed professions may follow suit in the future.

Ownership.

LLC owners (members) can be any individual or entity, and an LLC can have any number of members.

S corporation owners (shareholders) are limited to natural persons (none of which can be non-resident aliens), estates, tax-exempt organizations, and certain trusts. An S corporation must have no more than 100 shareholders, and all of the shareholders must consent to the S election.

Either type of entity can have only one owner.

Management.

California corporations are required to have at least a president, secretary, treasurer, and a director (or more directors, depending on the number of shareholders.) The shareholders elect the directors, and the directors in turn elect the officers. The officers of the corporation are responsible for the day to day operations of the company business and answer to the directors and the shareholders.

LLCs can be managed either by manager(s), or by one, some, or all of the member(s). There is no requirement that an LLC have officers, but LLCs are not prohibited from electing them, either.

Maintenance.

California Corporations Code requires that shareholders hold meetings at least once a year, and most bylaws require periodic director meetings and that meeting minutes must be kept. The law does waive the meeting requirement if issues normally covered at the meetings are consented to by written consent.

There are no legal requirements for LLC members and/or mangers to have regular meetings or that meeting minutes be kept. It is recommended, however, that multi-member and manager-managed LLCs have periodic meetings to promote smooth and proper operation of the business.

Profits and Losses.

Profits and losses are distributed to corporate shareholders based on the number of shares held by each.

LLC members, however, can agree to distribute profits and losses on a basis other than percentage of ownership, taking into account such factors as the number of hours or level or expertise that each member contributes to the LLC business.

Taxes.

S corporations are “pass-through” entities, meaning that the income is taxed only once as it is distributed to the owners.

The same holds true for LLCs. A single member LLC is treated as a “disregarded entity” in which the income is reported and taxed on the member’s personal income tax returns, and a multi-member LLC is taxed in the same manner as partnership income is taxed. An LLC can elect to be taxed as a corporation, but this is not common.

In an S-corporation, only the salaries paid to officers and employees are subject to self-employment taxes.

Members of LLCs, however, are subject to self-employment taxes on both salaries and profits. If the owners of the business do not intend to take a salary and there will be no employees, such as when the LLC is formed just to hold title to real estate, then this is not an issue.

Many business owners like the flexibility and ease of maintenance of an LLC. Others prefer the checks and balances found in the more structured management of a corporation; or need an S corporation because they want to attract investors in the corporation; or they must form an S corporation because of the nature of their business. The wrong choice may cost you in time, money and grief, so the decision should not be made without first consulting your attorney and your accountant. If you are interested in forming or converting[3] your business to an LLC or S corporation, please feel free to contact your attorney to discuss your options.

[1] There are significant differences between “S” corporations (“Small” corporations) and “C” corporations. For example, if you will be seeking investors and will have a large number of shareholders, and/or will be offering more than one class of stock, then the corporation would not be eligible for S corporation status. A C corporation is subject to double taxation (i.e. profits are taxed to the corporation, then are taxed again when distributed as income to the shareholders) but the profits of an S corporation are only taxed once as the income is distributed to the shareholders. Banks and insurance companies and foreign corporations cannot be S corporations

[2] Although members and shareholders are protected from company liabilities, their ownership interests are not protected from personal liabilities. California law does not permit owner protection against charging orders. In practice, a successful claimant against an owner personally would be entitled to receive only distributions of company profits, but not voting rights or management rights. It is uncommon for a judgment debtor to obtain and subsequently enforce a lien against the ownership interest itself.

[3] If you already have an LLC or S corporation, it is possible to convert to the other type of entity; and it may be to your advantage to do so.

On July 15, 2011, California Code of Civil Procedures Section 580e was passed by the California Legislature. That section changes the law of short sales for residential properties in two significant ways. First, it expands the protection for a borrower in a short sale scenario, so that if all lenders whose loans are secured by the property approve the short sale, none of the lenders may seek a deficiency judgment against the former borrower.

Also, it adds an additional protection by stating that none of the lenders who approve the short sale may require the former borrower to pay any additional compensation, aside from the proceeds of the short sale, in exchange for the written consent of the sale.

Prior to July 15, 2011, in a short sale situation, the former borrower still had to address a second or third loan, or for that matter, an equity line, recorded against the property. Only the first lender was prohibited from seeking a deficiency judgment.

Next, a significant case was decided in 2011, protecting commercial landlords. In that case, Frittelli, Inc. v. 350 North Canon Drive LP, the California Court of Appeal enforced the landlord’s liability exemptions in a commercial lease at the summary judgment stage of a litigation brought by the tenant alleging that the landlord’s renovation of the shopping center destroyed the tenant’s business. Specifically, the exculpatory clause in the commercial lease had exempted the landlord from liability for breach of lease, breach of the implied covenant of quiet enjoyment, rescission, and ordinary negligence. The lawsuit had arisen from the landlord’s alleged interference with the tenancy in remodeling the shopping center; the clause at issue stated that the landlord had no liability under “any circumstances” for breaches of the lease, and/or negligence for damages or injury arising from any cause in the areas of the shopping center outside the leased premises, or for injuries to the tenant’s business.

The lease was a “net lease”, which the court found ordinarily signals that the parties intended to transfer from the landlord to the tenants the major burdens of ownership of the real property over the life of the lease.

The lease at issue was a standard form agreement entitled “Standard Retail/Multi-Tenant Lease-Net”. While the court’s decision did not specify which form lease was utilized, in the commercial leasing field, it is quite common to use form leases which often contain similar types of exculpatory language.

This is an excellent case for commercial landlords. It is highly unlikely though that these types of exculpatory provisions would apply in a residential lease context.

Conversely, however, a decision of the Court of Appeal in Avalon Pacific – Santa Ana LP v. HD Supply Repair and Remodel LLC reached a decision that was not favorable for the landlord. In that case, the court found that the landlord could not recover costs of repair damages for the tenant’s breach of maintenance and repair obligations when the lease had neither expired nor been terminated. Similarly, the court found that when the lease will be in effect for an extended term, the landlord may only recover waste damages before the lease expiration of termination or a showing of substantial and permanent damage resulting in a reduced market value.

In other words, the court found that the time for a landlord to raise maintenance and repair damages (arising from the condition of the property) is when the lease expired, or was terminated from some action of the landlord, such as in an eviction action.

]]>http://randicklaw.com.s206305.gridserver.com/blog/?feed=rss2&p=1742Phillip Vermont Receives Award from East Bay Association of Realtorshttp://randicklaw.com.s206305.gridserver.com/blog/?p=153
http://randicklaw.com.s206305.gridserver.com/blog/?p=153#commentsFri, 24 Feb 2012 21:52:46 +0000http://randicklaw.com/blog/?p=153Congratulations to partner Phillip G. Vermont. He was awarded the “Affiliate of the Year” earlier this month by the Bay East Association of Realtors, a professional trade association serving over 5000 real estate professionals throughout the San Francisco Bay Area.
]]>http://randicklaw.com.s206305.gridserver.com/blog/?feed=rss2&p=1530Trademarks Take On New Importance in Internet Era…Even for Snack Foods?http://randicklaw.com.s206305.gridserver.com/blog/?p=150
http://randicklaw.com.s206305.gridserver.com/blog/?p=150#commentsWed, 22 Feb 2012 01:50:49 +0000http://randicklaw.com/blog/?p=150Under the headline “Trademarks Take On New Importance in Internet Era,” the New York Times today reports on a trademark dispute between snack food behemoth Frito-Lay and a serial entrepreneur over the registrability of the mark PRETZEL CRISPS. The headline is a bit misleading, as one would expect this article to discuss the reasons why trademarks are more important in this age of Internet search rather than a dispute involving off-line snack food brands. Regardless, this article warrants a discussion of fundamental principles of trademark law.

The first question courts will always ask in a dispute involving a trademark is whether the name a party seeks to protect is in fact entitled to such protection under the law. There are five categories of trademarks according to their protectability: (1) generic; (2) descriptive; (3) suggestive; (4) arbitrary; and (5) fanciful. KP Permanent Make-Up, Inc. v. Lasting Impression I, Inc., 408 F.3d 596, 602 (9th Cir. 2005). “The latter three categories are deemed inherently distinctive and are automatically entitled to protection because they naturally ‘serve[ ] to identify a particular source of a product . . . .’ ” Id.(quoting Two Pesos, Inc. v. Taco Cabana, Inc., 505 U.S. 763, 768 (1992)). Descriptive marks “define a particular characteristic of the product in a way that does not require any exercise of the imagination.” Surfvivor Media, Inc. v. Survivor Productions, 406 F.3d 625, 632 (9th Cir. 2005). A descriptive mark can receive trademark protection if it has acquired distinctiveness by establishing “secondary meaning” in the marketplace. Filipino Yellow Pages, Inc. v. Asian Journal Publ’ns, Inc., 198 F.3d 1143, 1147 (9th Cir. 1999). “Generic marks give the general name of the product; they embrace an entire class of products.” Kendall-Jackson Winery, Ltd. v. E. & J. Gallo Winery, 150 F.3d 1042, 1047 n.8 (9th Cir. 1998). “Generic marks are not capable of receiving protection because they identify the product, rather than the product’s source.” KP Permanent Make-Up, 408 F.3d at 602.

In the PRETZEL CRISPS dispute cited in the NY Times article, Frito-Lay seeks to cancel a trademark registration in the U.S. supplementary register and oppose trademark applications that were conditionally approved by the U.S. Patent and Trademark Office for registration in the primary register. The trademark applicant Princeton Vanguard, LLC (“Applicant”) seeks registration of its mark in connection with “pretzel crackers.” Last year, Frito Lay filed a motion for summary judgment requesting the Trademark Trial and Appeals Board (“TTAB”) to rule that, as a matter of law, the trademark PRETZEL CRISPS is generic for “pretzel crackers” and is therefore not entitled to registration.

To prove its claim that the trademark is generic, Frito-Lay must show that the mark refers to the class, genus or category of goods on which it is used. In other words, it must show that that terms “pretzel crisps” that compose the mark refers to the goods “pretzel crackers.” While this might be the case in the United Kingdom, I am not aware of the term crisps being used specifically to describe the genus of goods synonymous with crackers or chips in the United States. The Applicant provided substantial evidence, including expert surveys, to support its position that American consumers did not view the mark as referring to the genus of pretzel cracker products. The Board agreed with the Applicant and denied Frito-Lay’s motion. This decision leaves the trial of this case primarily on the issue of whether the mark has “secondary meaning.”

To determine whether a descriptive mark has secondary meaning, a finder of fact considers: “(1) whether actual purchasers of the product bearing the claimed trademark associate the trademark with the producer, (2) the degree and manner of advertising under the claimed trademark, (3) the length and manner of use of the claimed trademark, and (4) whether use of the claimed trademark has been exclusive.” Levi Strauss, 778 F.2d at 1358 (quoting Transgo, Inc. v. AJAC Transmission Parts Corp., 768 F.2d 1001, 1015 (9th Cir. 1985)) (alteration omitted). While the Applicant has provided a preview of its “secondary meaning” case when it opposed Frito-Lay’s summary judgment motion, the substantive case has not yet apparently been submitted to the Board.

While the PREZEL CRISP case is not ground breaking trademark precedent, the parties recently engaged in discovery disputes over the unresolved scope and duties of providing “electronically stored information” or ESI, a topic ripe for a separate blog post.

Patrick E. Guevara is a senior associate and represents small and mid-sized businesses and entrepreneurs in the Tri-Valley, the Greater San Francisco Bay Area, and the Central Valley in the areas of intellectual property, trademarks, copyrights, employment, real estate, and immigration.

]]>http://randicklaw.com.s206305.gridserver.com/blog/?feed=rss2&p=1501California Participated in the Multi-Billion Dollar Settlement Over Wrongful Foreclosureshttp://randicklaw.com.s206305.gridserver.com/blog/?p=144
http://randicklaw.com.s206305.gridserver.com/blog/?p=144#commentsFri, 10 Feb 2012 00:51:53 +0000http://randicklaw.com/blog/?p=144In a press release today, California Attorney General Kamala Harris announced California’s participation in a nationwide settlement with the top five mortgage banks (Bank of America, Wells Fargo, Chase, CitiBank, and Ally) over wrongful foreclosures, robo-signing, and other mortgage servicing misconduct.

Calfornia’s settlement is valued at $18 billion. Unlike past mortgage crisis relief programs, the five banks have purportedly agreed to make principal reductions for California homeowners of at least $12 billion total. AG Harris also noted that the California settlement is unique from “the larger multistate agreement, which is enforceable in a federal court in Washington, D.C.,” in that the AG can enforce the settlement agreement in California state court. Also, the settlement does not include mortgage loans owned by the government sponsored enterprises (“GSEs”) Freddie Mac and Fannie Mae, which make up around 60% of residential mortgages nationwide.

AG Harris also took this opportunity to announce that she will propose “a comprehensive legislative agenda to protect homeowners in the mortgage market…including a single point of contact for mortgage-holders and an end to the unfair and confusing system of dual-track foreclosures.” These proposals are very relevant to the foreclosure cases I have recently worked on.

In a case before a federal court in San Francisco entitled Sohal v. Freddie Mac, we recently defeated the banks’ motion to dismiss. The primary issue was whether the foreclosing party, which sold the mortgage to Freddie Mac and merely acted as a servicer, had the standing and authority to foreclose on the property. Freddie Mac and Fannie Mae do not service loans so the point of contact of the loans they own are the servicers, who also typically originated the mortgage. While there have been numerous problems in dealing with the servicer, I don’t think a single point of contact will resolve the problem. The problem lies in the tangled web of “back-end” contracts from the securitization of the mortgages. Servicers do not make the actual decisions. They have to obtain consent from the “investors.” Any proposed legislation should, instead, focus on properly define the roles, rights, and obligations of all parties in the transaction, including the originator, the servicer, the fictional “nominee” MERS, and the “investors.”

We also have a wrongful foreclosure action in state court involving dual-track. It’s not necessarily confusing. However, from the borrower’s point of view, it is certainly unfair that the lender can sue for foreclosure and at the same time go forward with a non-judicial foreclosure sale. The primary advantage for the lender (in addition to forcing the borrower to incur additional attorneys fees to deal with both proceedings) is that the lender can request the Court to appoint a receiver to collect rents if there is an assignment of rents. California’s nearly century old non-judicial foreclosure scheme was intended by the legislature to provide a streamlined process while balancing the interests of both the lender and borrower. The trend has been and continues to be in favor of lenders. Courts are unlikely to reverse this trend, so ultimately it will be up to legislative action to re-balance California’s foreclosure scheme. With the public backlash and the revitalized momentum of the recent settlements, foreclosure law should have very interesting year or two.

(a) By January 1, 2013, whenever an employer enters into a contract of employment with an employee for services to be rendered within this state and the contemplated method of payment of the employee involves commissions, the contract shall be in writing and shall set forth the method by which the commissions shall be computed and paid.

(b) The employer shall give a signed copy of the contract to every employee who is a party thereto and shall obtain a signed receipt for the contract from each employee. In the case of a contract that expires and where the parties nevertheless continue to work under the terms of the expired contract, the contract terms are presumed to remain in full force and effect until the contract is superseded or employment is terminated by either party.

(c) As used in this section, “commissions” has the meaning set forth in Section 204.1. “Commissions” does not include short-term productivity bonuses such as are paid to retail clerks; and it does not include bonus and profit-sharing plans, unless there has been an offer by the employer to pay a fixed percentage of sales or profits as compensation for work to be performed.

According to California Labor Code section 204.1, commissions are “compensation paid to any person for services rendered in the sale of such employer’s property or services and based proportionately upon the amount or value thereof.”

The California Court of Appeal, Second District, clarified that compensation will be considered “commissions” if:

the employees are “involved principally in selling a product or service, not making a product or rendering the service”; and

“the amount of their compensation [is] a percent of the price of the product or service.”

Keyes Motors v. DLSE, 197 Cal.App.3d 557, 565 (1987).

If an employee’s compensation meets the Keyes test, then the employer must meet the following requirements of Section 2751 by January 1, 2013:

Commission Agreements must be in writing

The agreement must contain the method of computation and payment

Employee must receive copy of signed agreement

Employee must sign a receipt acknowledging he or she received the signed copy

This new law reaffirms California’s well-established rule that the right of an employee to commissions are governed by the terms of the contract for compensation. See Steinhebel v. Los Angeles Times, 24 Cal.App.4th 696, 705 (2005). Thus, it is important for employers to regularly review their sales commission agreements and consult legal counsel, if necessary, to ensure that commission computation and payment terms are clear and that they have complied with section 2751.

]]>http://randicklaw.com.s206305.gridserver.com/blog/?feed=rss2&p=1380CAN EMPLOYERS MONITOR EMPLOYEE ELECTRONIC COMMUNICATIONS IN THE WORKPLACE?http://randicklaw.com.s206305.gridserver.com/blog/?p=129
http://randicklaw.com.s206305.gridserver.com/blog/?p=129#commentsFri, 08 Jul 2011 20:09:11 +0000http://randicklaw.com/blog/?p=129The use of the internet, email, text messages, and cell phones are rampant in the workplace because of good reason. As the US moves ever closer to an information worker/service type of economy, the convenience and speed of electronic communications increase the efficiency and productivity of employees, and any business without these tools is at a severe competitive disadvantage.

Risks

On the downside, the use of the electronic devises can actually result in a loss of efficiency due to employees’ use employer-provided devices for personal, non-work-related use during work hours. Employees might use the web to visit pornographic websites or disburse inappropriate materials via company email, and therefore expose employers to legal liability for permitting a hostile work environment due to harassment or defamation. Further, the unscrupulous employee could expose the employer’s trade secrets, proprietary and confidential information, or engage in inappropriate contact with competitors or customers.

How can you as an employer protect against these risks? The easiest way is for the employer to monitor communications between employees and other parties. But isn’t that an illegal invasion of the employee’s privacy?

Governing Laws – Employee Protections

Both federal and state law limit an employer’s ability to monitor employees’ communications. The Fourth Amendment to the Constitution protects every citizen against unreasonable search and seizure, and The Electronic Communications Privacy Act of 1986 (ECPA), 18 U.S.C. §§ 2510 et seq extends Fourth Amendment protection to include email and other digital communications. Under the ECPA, the lawfulness of particular monitoring activities will depend heavily upon whether employees’ messages are intercepted during transmission or are retrieved from storage on the company’s server. Another provision of the ECPA prohibits disclosing “to any person or entity the contents of a communication while in electronic storage by [the company’s] service.” In other words, employers may under certain circumstances be permitted to discuss the contents of an employee’s communications with that employee, but the employer should seek legal advice before disclosing the contents of such communications to anyone else.

Under California privacy laws, specifically Cal. Penal Code §§630 et seq, the Wiretap Statute provides that the employer must have the consent of both parties to the communication, not just the employee, to monitor real time communication via any media, or else be exposed to criminal and/or civil liability. The California Eavesdropping Statute prohibits anyone who does not have the consent of all parties to a confidential communication from eavesdropping upon or recording that communication. Employers also should be aware of electronic surveillance laws in other states in which they do business and with which employees are likely to have online contact.

Employer Protections

So, then, how does an employer protect himself and his business against inappropriate use of electronic communications by an employee?

The ECPA allows employers to intercept electronic communications if the employee consents in advance. To remove the expectation of privacy by employees, employers should establish a formal Internet Acceptable Use Policy (IAUP) that puts an employee on written notice that any electronic non-business-related activities are done at the employee’s own risk and can by monitored by the employer, and that password protection is not an indication of personal privacy. In consideration of the two California statutes, the safest approach is for employers to review the contents of employee communications, not in real time, but only after those communications have been stored on the employer’s server. Cell phone calls and text messaging a little trickier to monitor, because California is one of only a handful of states that requires permission of both sender and recipient of a communication to the eavesdropping or recording of that communication.

One circumstance when the retrieval of an employee’s text messaging or cell phone records is legal is if it is motivated purely by a legitimate business need and if it is not excessive in scope. For example, in City of Ontario v. Quon, 78 U.S. L. W. 4591, 201WL 2400087 (U.S. June 17, 2010) (No. 08-1332), it was decided that the employer was reasonable in procuring two months’ worth of text message records of the employee’s, because the employer only wanted to determine if the monthly limit on characters on the current plan was too low for sending work-related messages and if the limit should be increased to accommodate legitimate business requirements.

An IAUP should be a written policy covering all modes of electronic communications, not just internet use. Each employee should sign a copy of the company IAUP in acknowledgement of receipt, and the signed copy should be kept in the employee’s file. The policy should clearly establish a code of conduct and specify what is not allowed, e.g. access to pornographic or racist websites; revelation of company trade secrets; obscene, profane, or abusivelanguage; offensive or derogatory images onscreen savers; and so forth. The policy should also specify the consequences of violating the policies, such as whether warnings will be issued, or when immediate termination of employment can be expected. Employers should review their IAUP every one or two years to make sure that any new technological advances in communications or changes in the law are addressed.

Another means of protecting the employer (as well as the employee) is to implement periodic training sessions to sensitize employees as to what is not only questionable but is in direct violation of the IAUP; and to emphasize the legal and other consequences of a violation of the IAUP both for the employee and for the company.

Electronic communication is here to stay. Although it provides many advantages to businesses, certain uses of it by employees can also expose an employer to serious risk and liability. The best protection for the employer is to establish a written, comprehensive policy concerning employee use of email, the internet, texting and cell phones. The policy should be periodically updated and reinforced by training sessions.

If you need assistance in drafting an effective Internet Acceptable Use Policy, please contact your attorney.

]]>http://randicklaw.com.s206305.gridserver.com/blog/?feed=rss2&p=1295UNLICENCED CONTRACTORS IN CALIFORNIAhttp://randicklaw.com.s206305.gridserver.com/blog/?p=114
http://randicklaw.com.s206305.gridserver.com/blog/?p=114#commentsThu, 23 Jun 2011 22:56:45 +0000http://randicklaw.com/blog/?p=114California requires that all contractors, including specialty contractors such as fencing, roofing, tiling, painting, solar, landscaping, and insulation contractors, be licensed by the Contractor State License Board (“CSLB”). Specifically, “It is illegal for an unlicensed person to perform contracting work on any project valued at $500 or more in labor and materials. Besides being illegal, unlicensed contractors lack accountability and have a high rate of involvement in construction scams. They also are unfair competition for licensed contractors who operate with bonds, insurance and other responsible business practices.” (CSLB website) The CSLB has set up the State-Wide Investigative Fraud Team to monitor and combat illegal activity by conducting stings and sweeps of construction sites, often operating in conjunction with other state agencies dedicated to combating underground activity.

What can you do to protect yourself from unlicensed contractors? Ask to see a copy of the license held by your potential contractor. Then, check the status of the license with the CSLB at http://www.cslb.ca.gov/Consumers/HireAContractor/ to make sure that all required insurance is in place and that the license is current. Make sure that your contractor obtains all the necessary permits and inspections. Have your attorney review the contract presented to you by the contractor before you sign or pay any money. There are many other tips in vetting your contractor provided on the CSLB website.

What if you find that your contractor was not licensed and the work performed is not up to par? Complaints against all contractors, licensed or unlicensed, can be filed on the CSLB website. CSLB will determine if your complaint warrants further investigation, and they do not guarantee restitution. If you are interested in restitution, you should consult with your attorney. Business and Professions Code §7031 provides that, with certain exceptions, “a person who utilizes the services of an unlicensed contractor may bring an action… to recover all compensation paid to the unlicensed contractor for the performance of any act or contract.” In other words, under the right circumstances, you may be entitled to a full refund of all payments made to an unlicensed contractor, not just an award to compensate for the portion of work not properly performed.